Morgan Stanley has produced a detailed report for single-family offices…is it any use?

Surprisingly, yes, particularly if you’re a US-based family office, or someone thinking about setting one up. 

We say surprisingly, because, investment banks and family offices haven’t necessarily got on in the past. Investment banks charged too high fees for sometimes not great outcomes have been the complaint in the past from many single-family offices. Trust between the two has sometimes suffered as a result.

But the Morgan Stanley report does at least suggest the big investment banks are taking the time to think through issues family offices might have and provide some useful advice on these issues. 

The report, which is more than 60 pages (that in itself is an achievement), is broken down to six parts, and concentrates on things like set up and operations, asset management, wealth advisory, and the less interesting, but important, financial administration. There’s also a section on lifestyle advisory and concierge services – which looks at things like personal security and private aviation. 

Part one is about purpose and mission statements, which might appeal to some family offices, less to others. Big organisations love mission statements – how useful they are to family offices is a moot point. 

Part two – set up and operations –  is probably the most worthwhile, particularly for those families looking to set up a family office, but also for existing family offices to help with best practices. 

The report looks at some of the different legal structures – in the context of the US – family offices use. Interestingly, since the US “Tax Cuts and Jobs Act of 2017,” C corporations structures are becoming increasingly popular.  Apparently around 17% of family offices, according to research from Family Office Exchange cited in the report, are now structured as C corporations, compared with very few in the past. 

Within this section, the report also looks at recruiting and compensation, and makes the point that family offices need to pay competitive salaries if they are to attract top talent – a factor that some family offices don’t appreciate enough.

In Part three on asset management, the report recommends family offices should consider an investment policy statement. According to Morgan Stanley: “The adherence to an investment policy statement that employs principles of diversification and risk management can help to maintain the integrity of the assets during periods of stress and otherwise can help protect against impacts from changes in personnel stewarding the assets.” 

Given the recent disruption in capital markets because of Covid-19, this might make more sense than before the pandemic. 

Few people are going to read all the report, but there are interesting and useful points all the way through, and, given the report is free, it makes sense for those running a family office to at least have a glimpse at.